Thursday, May 03, 2007

Strong German Job Growth Continues

It is increasingly evident that most economists -including me- underestimated just how big the positive effects of the German free markets reforms would be. During the latest year, employment growth has been 1.6%. Now, that may not sound particularly impressive, but considering the fact that this happens in a country with a shrinking working age population, it is actually really impressive.

The employment to population ratio rose 1.6%:points, from 67.7% to 69.3%, meaning that employment rose in effect 2.4% relative to the working age population. This is the equivalent of a 3.4% employment growth in America (or a monthly employment gain of 400,000). As a result, unemployment is falling dramatically, from 8.8% the year before to 7.2% now.

This however, implies that the current relative strong economic growth rate is unsustainable. Not only because it is partly (although probably to a lesser extent than in other euro zone countries) fueled by unsustainably low ECB interest rates, but also because the shrinking work force means that labor shortages will soon appear.

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